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Q. & A.: Marketplace Fairness Act

Lots of questions -- and some answers.

Staff Report (May 6, 2013)

(Note: Michael D. Brown is a speaker, management consultant,

Q. What is it?

A. Legislation that helps states force e-commerce sites to collect sales tax. Currently, consumers on their own are supposed to pay sales tax to their state, but few do, or even know they are supposed to.

Q. What's the status of it now?

A. The initial vote to begin debate passed 70-24, so it's expected the Senate will approve it. The Senate is expected to vote on the bill this week. An identical bill is pending in the House. President Obama has said he will sign the legislation.

Q. What's the motivation?

A. Before e-commerce, the Supreme Court ruled that a business does not have to collect sales tax if it does not have a physical entity (an office, warehouse, brick-and-mortar store, etc.) in the state. The explosion of e-commerce has created the "showroom" phenomenon. For example, consumers check the price of a large-screen tv in Best Buy, or a diamond ring in a jewelry store, then buy the items online, thus saving the sales tax.

Q. Who's for it and who's against it?

A. The New York Times said it "is that rare piece of legislation that has turned Democrat against Democrat, Republican against Republican, and business against business, while uniting states as different as New Hampshire, Montana and Oregon -- which have no sales taxes -- against virtually every other state."

Most states support it because they need the tax revenue. It's estimated states lose as much as $20 billion or more in revenue. The National Retail Federation has been lobbying in support of the bill, saying e-commerce sites have an unfair advantage over brick-and-mortar stores. Wal-Mart is in favor of it; the company's local Congressman, Steve Womack, introduced the House bill. Even Amazon is now in favor of it, as are Republican Senators Mike Enzi of Wyoming and Lamar Alexander of Tennessee, Wisconsin's Ron Johnson, and Oklahoma's Tom Coburn.

Those opposed to the bill include Etsy and the anti-tax leader Grover Norquist and his Americans For Tax Reform group. eBay is also opposed, as is Senator Max Baucus of Montana, which has no sales tax. He told the Wall Street Journal, "In Montana, it forces our small businesses to play tax collector for other states, with absolutely no benefit to them.".

Q. Does it affect all e-commerce sites?

A. No. Sites with sales of less than $1 million are exempt.

Q. If an e-commerce site is in Illinois and an Iowa customer buys something, does the site collect Illinois or Iowa sales tax?

A. Iowa tax. According to the Times, "The bill would allow states to require all Internet sellers to collect sales taxes for the state and local governments of the buyers. State governments would be required to provide software free to Internet retailers to calculate sales taxes."

Q. Is it just state sales tax that has to be collected?

A. No. Many communities have local sales taxes that also must be applied. Opponents claim there are more than 9,000 state and local tax rates.

Q. How would a site in Indiana know how much tax to charge a customer in Ohio?

A. The bill requires states to provide e-commerce sites with software that automatically calculates the tax.

Q. Are their unanswered questions?

A. Of course, as with most legislation, the devil will be in the details. For example, what must an e-commerce site with sales under $1 million do to prove it is exempt? How often must the site pay each community?

To read the Times article, click HERE.

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